The cost of long-term care is expected to increase significantly over the next couple of decades. In the next 30 years, long-term care annual costs are predicted to grow by 330% to $300,000 a year for an in-home caregiver, according to American Association for Long-Term Care Insurance. The expenses are expected to increase even more for a nursing home or assisted living facility. The inflation in consumer prices could affect the retirement income and savings of older adults. Richard L.Kaplan, an Internationally recognized expert on U.S. tax policy and retirement issues, spoke with Illinois News Bureau business and law editor Phil Ciciora about the risks seniors face with the ever-growing costs.
“Are retirees adequately protected from inflation through Social Security’s annual cost-of-living adjustment – 5.9% for 2022 – or is the COLA insufficient to offset the inflationary pressures?”
Social Security’s cost-of-living adjustment can lighten up the risks of inflation, but not all of it.
The adjustment is influenced by the government’s Consumer Price Index, which is the average price of consumer goods and services bought by households. The CPI does not solely focus on the goods and services seniors specifically purchase, such as their health care costs.
While most medical costs regarding COVID-19 have been covered by the federal government, seniors are still required to pay for other healthcare costs. This includes doctor visits and medications. Thus, the increase in Social Security benefits does not fully take care of the rising costs seniors will experience.
“If inflation is transitory or weakens in the coming months, would that help retirees come out a little ahead?”
If inflation slows down, it could lower next year’s cost-of-living adjustment. Next year’s change in prices could be completely avoided if inflation lowers significantly, as it has happened in the past. However, inflation weakening is not assured.
“Does the combination of inflation and the rollercoaster stock market underscore the need to strengthen Social Security, especially with COVID-19 increasing the number of new retirees, thereby pushing the program’s insolvency date up a year?”
The return of the stock market’s volatility and inflation can alarm many older adults receiving Social Security benefits. However, these unsettling changes are not new or unexpected. The COVID-19 pandemic affected parts of the program and changes to its structure may be necessary.
During the early days of the pandemic, many older adults in their early 60s lost their jobs and wanted to retire earlier to avoid the risk of catching the emerging variants. This caused more eligible individuals to take their social security retirement benefits earlier than planned. While, at the same time, many younger individuals who were paying for the Social Security program either lost their jobs, had their hours reduced, or faced more tragic cases due to the disease. Thus, more money was taken out of Social Security than money going into the program.
The U.S. Census Bureau also confirmed that life expectancy in the U.S. has decreased by 1.8 years. Lower life expectancy can affect Social Security because now the program will be covering lifelong benefits for smaller increments of time.
It is hard to tell how this will all lead up to the future of inflation, however, these changes are significant to pushing forward the various proposals to rebuild Social Security’s finances.
Expenses for seniors are ever-increasing, and preparation is necessary. 1+1 Cares provides more information on how to prepare for inflation, such as through long-term care insurance.
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